Investment Guidance System Which Enables Individuals To Rate And Select Assets Based On Personal Investment Preferences

ABSTRACT

An investment guidance system which enables individuals to rate and select assets based on personal investment preferences. The system comprises a method for receiving a request to rate a plurality of assets, providing two or more criteria associated with the assets for a user to evaluate, receiving a relative weight of importance for the two or more criteria, and determining a rating for each asset based on the relative weights assigned to the two or more criteria. The system then ranks the plurality of assets based on the rated value for each asset, provides a list of the ranked assets and receives requests to execute trades for the ranked assets. The assets can comprise mutual funds, stocks, bonds, and/or other investment vehicles.

FIELD OF THE INVENTION

The invention is directed to a system and method for providinginvestment guidance and, more particularly, to a system for facilitatingthe selection of investment options such as mutual funds.

BACKGROUND OF THE INVENTION

With the advent of employee directed contribution plans such as 401(k)programs during the 1980's, many investors have ultimately becomeresponsible for managing their own retirement investments. However, mostindividuals do not have the proper financial understanding to makewell-informed investment decisions. Technical analysis of investmentsinvolves a thorough understanding of probability, statistics and riskassessment techniques. Furthermore, the types of retirement accounts(401(k), IRA, Roth IRA, etc.) and the possible investment options arecontinuously increasing in number, diversity and complexity. Forexample, while many investors today are very familiar with the conceptof investing in a mutual fund as an ostensibly simple way to invest,there are now over 10,000 mutual funds to choose from.

Personal retirement assets currently exceed $4.5 trillion and areexpected to reach nearly $9 trillion by 2004. Therefore, seeking tocapitalize on the apparently vast market opportunity, many financial andsoftware companies have developed investment software to assistindividuals in evaluating their assets and in planning for retirement.Most investment software packages and applications found on the Internetprovide the investor with asset allocation suggestions. The investorthen determines the actual combination of financial products thatsatisfy the suggested allocation. Additionally, some programs employ“retirement calculators” to determine the probability of achieving aretirement income goal based on an anticipated retirement age, a savingsamount, a desirable investment risk, and an asset allocation. Indetermining the probability of achieving a retirement income goal, theseprior art retirement calculators essentially forecast the investorsaccumulated wealth as of the date at retirement. Thereafter, thecalculators convert this lump sum amount to a fixed annuity which ispurchased at the time of retirement.

Furthermore, some investment programs then create an optimizedportfolio, comprised of the available financial products, that satisfiesthe investor's retirement goals and investment style. In analyzing theinvestor's goals and current investments, the prior art systems define aretirement investment strategy, determine a target asset mix, andidentify a model portfolio for the user to implement.

Since most retirement assets are invested in mutual funds and since avast amount of individuals prefer investing in mutual funds, a number ofmutual funds selector programs are available in the prior art. Suchmutual fund selection tools available in the prior art are designed toassist individuals in selecting mutual funds that meet certain criteria,such as, investment type, fund performance, fund ratings, fund risk, andfund loads. Typical mutual fund selectors allow individuals to eliminatemutual funds which do not meet a certain stated criteria. Specifically,based on the investor's understanding of the various statisticalcriteria, the investor sets thresholds, and the system filters theavailable universe of mutual funds eliminating those funds which do notmeet the specified criteria. Once the universe of available funds isadequately reduced, the investor sorts the remaining funds one criteriaat a time, and makes a subjective evaluation of the funds which meet allof the defined criteria.

SUMMARY OF THE INVENTION

In one aspect, the invention features an investment guidance systemwhich enables individuals to rate and select assets based on personalinvestment preferences. The system comprises a method for receiving arequest to rate a plurality of assets, providing two or more criteriaassociated with the assets for a user to evaluate, receiving a relativeweight of importance for the two or more criteria, and determining arating for each asset based on the relative weights assigned to the twoor more criteria. The system then ranks the plurality of assets based onthe rated value for each asset, provides a list of the ranked assets andreceives requests to execute trades for the ranked assets. The assetscan comprise mutual funds, stocks, bonds, and/or other investmentvehicles.

In one embodiment, the criteria associated with the assets underevaluation include tax efficiency, consistent returns, stock/bondpicking ability, low risk, consistent investment style, and low fees.

In a further embodiment, the system provides an input mechanism forreceiving the relative weight of importance for the two or more assetcriteria. The input mechanisms may include slider bars, text boxes, orother graphical input mechanisms.

In another aspect, the invention features an investment guidance systemwhich provides financial planning assistance. The system comprises amethod for receiving a financial goal from a user and receiving inputdecisions upon which the probability of achieving the financial goal isdependent, wherein one of the input decisions includes selecting anasset allocation based on investment risk. The system further comprisesa method for determining the probability of achieving a financial goaland receiving an indication that the user has selected a target assetallocation investment plan in order to achieve the financial goal.Thereafter, the system receives a request to rate a plurality of assetswithin a selected asset class, provides criteria associated with theassets for a user to evaluate, and receives a relative weight ofimportance for each criteria based on the user's personal investmentpreferences. The system also determines a rating for each asset based onthe relative weights assigned to the criteria and then ranks theplurality of assets based on the rating. Thereafter, the system receivesa request to execute a trade for one or more of the ranked assets inorder to fulfill the target asset allocation investment plan andexecutes the trade for one or more of the selected ranked assets.

In yet another aspect, the investment guidance system comprises a methodfor reallocating the asset allocation in a user's portfolio based onexecuted trades. Furthermore, the system also receives additionalrequests to execute trades for one or more of the ranked assets in orderto fulfill the target asset allocation investment plan.

Additionally, through a monitoring system, the investment guidancesystem evaluates the target asset allocation investment plan against oneor more financial goals and alerts the user if progress towards one ormore of the financial goals deviates substantially.

In a preferred embodiment, the financial goal is a retirement incomegoal, and the input decisions which effect the probability of achievingthe retirement income goal include, a 401(k) contribution rate, ataxable savings rate, the income required at retirement, and theanticipated retirement age.

In yet another aspect, determining the probability of achieving thefinancial goal involves utilizing a parametric lognormal model whichincorporates a total time horizon. The total time horizon is the sum ofthe independently calculated time weighted horizons for the period ofcash inflows and the period of cash outflows.

In yet another aspect, the invention features an investment guidancesystem which rates assets for Internet users. The system features amemory for storing asset information, a processor connected to thememory, a transmitter connected to the processor to enable the processorto transmit information to a user system by means of the Internet, and areceiver connected to the processor to allow the processor to receiveinformation from the user system by means of the Internet. The processorreceives a request to rate a plurality of assets, transmits criteriaassociated with the assets for a user to evaluate, and receives inconnection with user processors, a relative weight of importance foreach criteria based on the user's personal investment preferences. Theprocessor also determines a rating for each asset based on the relativeweights assigned to each criteria, ranks the plurality of assets basedon the rating and provides a list of the ranked assets.

In yet another aspect, the invention features an investment guidancesystem for providing financial planning assistance to Internet users.The system features a memory for storing asset information, a processorconnected to the memory, a transmitter connected to the processor toenable the processor to transmit information to a user system by meansof the Internet, and a receiver connected to the processor to allow theprocessor to receive information from the user system by means of theInternet. The processor receives a financial goal from a user and alsoreceives one or more input decisions upon which the probability ofachieving the financial goal is dependent, wherein one of the inputdecisions includes selecting an asset allocation based on investmentrisk. The processor also determines the probability of achieving thefinancial goal and receives an indication that the user has selected atarget asset allocation investment plan in order to achieve thefinancial goal.

Thereafter, the processor receives a request to rate a plurality ofassets within a selected asset class, provides criteria associated withthe assets for a user to evaluate, and receives a relative weight ofimportance for each criteria based on the user's personal investmentpreferences. The processor also determines a rating for each asset basedon the relative weights assigned to the criteria, and then ranks theplurality of assets based on the rating. Further, the processor receivesa request to execute a trade for one or more of the ranked assets inorder to fulfill a target asset allocation investment plan, and executesthe trade for one or more of the selected ranked assets.

While the embodiments of the present invention will be described withreference to a financial guidance system and more specifically to amethod and system for evaluating mutual funds based on personalinvestment preferences, the method and apparatus described herein areequally applicable to the evaluation and ranking of other types of data,financial or non-financial (e.g., such as wine characteristics used torank wine) based on personal preferences.

BRIEF DESCRIPTION OF DRAWINGS

FIG. 1 is a block diagram illustrating a system in accordance with oneembodiment of the invention;

FIG. 2 is a block diagram showing further details of an exemplary systemthat can be used as one or more of the components shown in FIG. 1;

FIG. 3 illustrates an exemplary guidance server of the system shown inFIG. 1;

FIG. 4 illustrates a retirement goal forecaster summary screen accordingto one embodiment of the present invention;

FIG. 5 illustrates a mutual fund selector summary screen according toone embodiment of the present invention;

FIG. 6 depicts a screen used to specify mutual fund characteristics;

FIGS. 7A and 7B illustrate two views of an exemplary fund rank tableaccording to one embodiment of the present invention; and

FIG. 8 is a flow diagram illustrating a process of selecting mutualfunds for a target asset allocation based on personal investmentpreferences.

FIGS. 9A, 9B, and 9C illustrate figures associated with the goalforecaster methodology including the expected returns and standarddeviations for nine model portfolios, the normal versus lognormaldistributions for exemplary portfolio number 7, and the lognormaldistributions for portfolio seven over various time horizons.

DETAILED DESCRIPTION OF THE PREFERRED EMBODIMENTS Overall System

FIG. 1 illustrates the system architecture of the investment guidancesystem 100 which enables investors to determine long-term financialgoals, select an optimized asset mix, select mutual funds from a pre-setuniverse based on personal investment preferences, execute mutual fundtrades, receive information alerts when needed and evaluate and adjustinvestments on an ongoing basis. The system facilitates the selection ofmutual funds by allowing the investor to apply relative weights ofimportance to mutual fund criteria rather than requiring the investor toset fixed statistical thresholds. The system then sorts the availablefunds taking into account all of the weighted mutual fund criteria andpresents the user with a set of ranked funds. According to theembodiment depicted in FIG. 1, the investment guidance system 100includes a guidance server 120, a transaction server 110, a broadcastserver 115, a participant data server 125, and a user system 130.

The guidance server 120 is the primary provider of investment planningassistance to users, and is the central database repository for storinguser profile and investment data. In this manner, ongoing investmentmonitoring may be performed and alerts may be triggered. The guidanceserver 120 and its function will be described in further detail below,in connection with FIG. 3.

Users may include 401(k) participants, retirement plan participants, andretail users of financial service providers. The user system 130 mayemploy a general-purpose computer for communicating with the guidanceserver 120. In one embodiment, the general purpose computer of the usersystem is comprised of a processing unit, a modem, memory means, and anysoftware required to communicate with the guidance server.

In a further embodiment, the user system 130 may interact with andreceive feedback from the investment guidance system 100 using afinancial provider's software which may be running within a browserapplication. The financial provider software communicates with theguidance server 120 which acts as a HTTP server. In this embodiment, theinvestment guidance system 100 increases online traffic and encouragesreturn visits to the financial provider's website.

The transaction server 110 may be located at the site of a brokeragefirm, wherein it accepts and executes securities transactions which areinitiated by the user and transmitted via the guidance server 120. Thetransaction server 110 may also communicate with various stock exchangeservers to effect such transactions. As will be apparent to thoseskilled in the art, there are a number of ways that trades can betransmitted electronically for execution in a securities, commodities,or other exchanges.

The broadcast server 115 is a database server. Accordingly, it runs aninstance of a Relational Database Management System (RDBMS), such asMicrosoft SQL-Server™, Oracle™ or the like. The broadcast server 115provides access to all fund information and analytical data. The data isreceived from vendors at a predetermined time interval, usually on amonthly basis. The broadcast server 115 can also convert the dataobtained from data vendors from the specific vendor's format into astandard format that can be used throughout the investment guidancesystem.

The participant data server 125, which is a component of the partneringfinancial provider's system, may store user data which is thentransmitted to the guidance server 120. If the financial providermanages the user's 401(k) account and/or personal investment accountsthen the participant data server 125 contains the user's personal andfinancial information. Users may communicate directly with the guidanceserver 120 in order to provide their personal and financial informationor the users may contact the partnering financial provider who will thentransmit user information stored in the participant data server 125 tothe guidance server 120. In a further embodiment, the guidance server120 can automatically retrieve user information from the participantdata server 125 based on a user's request. In addition to personalinformation, user assets and IRA rollovers are usually stored in theparticipant data server 125.

In utilizing the investment guidance system 100, the financial providercan guide users through the investment process, including assisting withmutual fund selection, while avoiding specific recommendations andfiduciary issues associated with giving “advice.” The guidance server120 provides a vehicle for the financial provider to enhance customerrelations, increase assets under management and improve accountretention.

An Exemplary Computer System

FIG. 2 depicts an example computer system capable of carrying out thefunctionality of the investment guidance system in FIG. 1. The computersystem may represent an exemplary user system or any one of theplurality of servers referenced in FIG. 1. The system includes a centralprocessing unit (“CPU”) 250, read-only memory (“ROM”) 210, random accessmemory (“RAM”) 220, an encryption processor 230, a communication device260, user interface 240 and a large capacity storage device 270. Thelarge capacity storage device 270 may include hard disk magnetic oroptical storage units, as well as CD-ROM drives or flash memory.

The CPU 250 executes program code stored in one or more of the ROM 210,RAM 220 and/or large capacity storage device 270 according toconventional data processing techniques to carry out the functions andacts described in connection with the investment guidance system. TheCPU 250 preferably comprises at least one high-speed digital dataprocessor adequate to execute program modules for determining theprobability of reaching a financial goal, developing a retirement andinvestment plan and evaluating mutual fund selection criteria. The CPU250 may be embodied as a single commercially available processor or as anumber of processors operating in parallel.

CPU 250 comprises, in one embodiment, a microprocessor such as an Intel®Pentium Processor, which is electronically coupled to each of thecentral controller's other elements (e.g., RAM 220, ROM 210, etc.).

The ROM 210 and/or storage device are operable to store one or moreinstructions, while the CPU 250 is operable to retrieve, interpret andexecute those instructions. In one embodiment, the CPU 250 includes acontrol unit, an arithmetic logic unit (ALU) and a CPU local memorystorage device. The control unit is able to retrieve instructions fromthe data storage device or ROM 250 while the ALU is able to performoperations needed to carry out instructions. The CPU local memorystorage device is capable of providing high-speed storage used forstoring temporary results and control information.

The encryption processor 230 facilitates the public and private keyinterchange for all secured transactions between all elements of theinvestment guidance system. The private nature of the information thatis electronically transferred between guidance server 120, transactionserver 110, broadcast server 115, participant data server 125 and theuser system 130 indicates that secure platforms are preferable toguarantee the privacy of the information for all entities involved.

Secure platforms may be established between all elements of theinvestment guidance system through an encrypted pipe or a dedicatedencrypted line. In a further embodiment, the encryption process may bedemonstrated in a way where a Certification Authority, such as VeriSign,first issues Server IDs, or digital certificates to credibleorganizations. All organizations must complete a thorough backgroundcheck to ensure the organization is what it claims to be (and is notclaiming a false identity) before receiving a server ID.

Based on Secure Sockets Layer (SSL) technology, a secure communicationchannel is established between the guidance server 120 and the usersystem 130 as well as between the guidance server 120 and thetransaction server 110, the broadcast server 115, and the participantdata server 125. In one embodiment, SSL encrypts all traffic between theguidance server 120 and user system 130, using a unique session key. Tosecurely transmit the session key to a user system 130, the guidanceserver 120 encrypts it with the assigned public key. Each session key isused only once, during a single session with a single user. These layersof privacy protection ensure that information cannot be viewed ifintercepted by unauthorized parties.

When a message is sent electronically, the sending and receivingcomputers each generate a code based on the contents of the message. Ifeven a single character in the message content is altered duringtransmission, the receiving computer will generate a different code, andthen alert the recipient that the message is not legitimate. All pagesthat require secure transactions are switched to a Secure Sockets Layer.

A communication device 260 comprises devices for allowing communicationbetween the servers and the user system as well as communication betweenthe guidance server 120 and the financial provider. Communication ispreferably electronic by means of the Internet. The communication device260 may include a conventional high speed modem, a network interfacecard, or other well known interface devices, such as those used forcoupling to an Ethernet, token ring, or other types of networks. In thismanner, the computer system may be coupled to a number of servers via aconventional network infrastructure, such as the Internet and/or acompany's Intranet. In one embodiment, the communication device 260comprises a receiver to receive requests from the Internet and atransmitter to transmit information to the Internet.

A user interface 240 can comprise a display device, such as a cathoderay tube (CRT) or a liquid crystal display (LCD), for displayinginformation to a computer user. For example, graphical illustrations ofcurrent and “target” asset allocations, charts illustrating lifetimewealth forecasts and risk assessment, and other data may be presented tothe user on the display device. Additionally, user interface 240 alsocomprises an alphanumeric input device and a cursor control, such as amouse, a trackball, or cursor direction keys for communicatingdirectional information to the CPU. For purposes of the preferredembodiment, it is assumed that a display is used to present informationto each user, but it should be understood that information may bepresented to the users using an audio signal, a Braille interface or anyother suitable user interface.

An Exemplary Guidance Server

FIG. 3 illustrates an exemplary guidance server 120 and the elementsstored and processed by the server in order to develop and execute aretirement and investment plan, and, more importantly, to provide avehicle wherein users can rank and select mutual funds from a pre-setuniverse based on personal investment preferences. The elements withinthe guidance server include a user's personal and financial data 310, aretirement goal forecaster 320, a mutual fund selector 330, and amonitoring process 340.

A user's personal and financial information is either directly inputtedby the user or it is imported from a partnering financial provider. Thepartnering financial provider may manage the user's 401(k) accountand/or personal investment accounts. If the user is directly providinghis/her personal and financial information to the guidance server, theuser will be prompted by a series of information worksheets to enternecessary data. The user's financial data will be utilized by theretirement goal forecaster 320, the mutual fund selector 330, and themonitoring process 340 modules. Financial information the user may beasked to provide includes current age, gender, current wages, expectedwage growth, account balances, current financial product holdings,savings rate, retirement income goals, available financial products,constraints on fund holdings, rate of inflation, and other incomesources such as pension, social security benefits, or anticipatedinheritances. Users 130 may provide information for themselves, theirspouse or any other member of their household.

To ensure accurate investment planning, the user must continuouslyupdate data that is used by the investment guidance system 100 inprojecting retirement goals. For example, if the user's household incomeincreases or the user's employer adds a new mutual fund to the 401(k)program, then the user should update the income information and the listof available financial products in the user profile section.

Additionally, the user 130 may also provide investment information tothe guidance server 120. For each investment holding, such as a 401(k)account, the user will either (a) type in the ticker symbol of thesecurity they own (mutual fund or individual security), or (b) use alook-up feature provided by the investment guidance system 100 whereinthey can type in the company or fund name, and whereby the investmentguidance system looks up the corresponding ticker. In one embodiment,based on the ticker, the corresponding asset class will be assigned bythe investment guidance system 100 by accessing the broadcast server115. In an alternative embodiment, the user can add a generic asset, byspecifying the asset classification and the dollar amount. Afterproviding the ticker, the user may be asked to provide the number ofshares owned, the purchase date, and the cost basis. Asset classesinclude, but are not limited to U.S. equities (or any sub-asset classthereof, such as large cap value, mid cap value, mid cap growth, smallcap value, small cap growth), international equities (or any sub-assetclass thereof, such as emerging market equities), fixed income (or anysub-asset class thereof, such as intermediate-term bonds or junk bonds),real estate, precious metals and cash. In one embodiment, only the broadasset class definitions may be used (e.g., U.S. equities, internationalequities, etc.), and in a further embodiment, the sub-asset classes areused to allocate the user's assets (e.g. large cap, small cap, emergingmarket equities, etc.).

The retirement goal forecaster 320 determines and graphically depictsthe current asset allocation. The current allocation is based on theaggregate securities classification and the amounts across all of theaccounts. Based on the user's current holdings, the investment guidancesystem 100 may forecast the likelihood of meeting a retirement goal andgraphically depict the current portfolio's projected growth over time.The retirement goal forecaster 320 provides the user with statisticsregarding the likelihood that they will be able to retire at thespecified retirement age, given the time horizon, calculated returns,and standard deviations, which are based on the user's currentportfolio. Additionally, the retirement goal forecaster 320 enablesusers to modify their current savings rate, anticipated retirement age,income required at retirement and investment risk in order to definelong-term goals and achieve a feasible investment plan. The user defineshis/her risk tolerance by selecting one of the multiple predefined assetallocations ranging from conservative to aggressive. The retirement goalforecaster 320, its function and exemplary user interface will bediscussed in further detail in connection with FIG. 4.

Once the user determines an optimized asset mix through the retirementgoal forecaster, the target asset allocation is selected forimplementation; that is, the user is ready to select mutual funds tofulfill the target asset allocation investment plan. The objectives ofthe mutual fund selector 320 are to assist users in (a) ranking mutualfunds in each asset category based on personal investment preferencesand (b) selecting mutual funds to buy and sell in the appropriatequantities so that the current asset allocation meets the targetallocation. The mutual fund selector, its function and exemplary userinterface will be discussed in further detail below in connection withFIGS. 5 through 8.

In one embodiment, the investment guidance system continuously monitorsand alerts users on the status of their retirement and investmentsthrough a monitoring process 340. The system may evaluate the user'sinvestment plan against one or more financial goals and may notify theuser if progress towards any of the goals has deviated substantially.Circumstances which may trigger an alert, include, but are not limitedto, (1) no longer being on-target for meeting the retirement incomegoal, (2) no longer meeting the target asset allocation, (3) the fundslipping in rank as determined by reapplying the users investmentpreferences to new mutual fund data, and (4) news information concerningthe user's mutual funds or other topical stories of interest.

The investment guidance system 100 evaluates the status of the user'starget investment plan as new mutual fund data arrives. In oneembodiment of the system, the user can select which monitoring andalerting options to choose from, such as retirement plan monitoring,asset allocation monitoring and mutual fund monitoring. The alerts canbe generated by the investment guidance system 100 and presented to theuser when he/she logs on to the system. Alternatively, alerts may begenerated proactively by the system and transmitted to the user via atelephone, e-mail, fax or standard mail messaging system. In oneembodiment, if the alerts are transmitted by e-mail, the alert messagesshould include hyperlinks to the investment guidance system or to a newsstory if it is a news alert. Based upon the alerts generated by themonitoring system, the user may modify the retirement age, savingsamount, income required at retirement and asset allocation until theuser is satisfied with the probability of meeting his/her goal.

Retirement Goal Forecaster

FIG. 4 illustrates a retirement goal forecaster 400 summary screenaccording to one embodiment of the present invention. According to theembodiment depicted, the goal forecaster 400 summary screen includesseven separate areas: (1) an area 410 to display “coaching” messages toassist the user in developing a retirement and investment plan; (2) anarea 420 for the user to modify savings amounts, anticipated retirementage, and retirement need (i.e., the income required at retirement); (3)an area 430 for graphically depicting both the current and targetportfolio lifetime wealth forecast; (4) an area 440 for graphicallydepicting both the current and target asset allocation; (5) an area 450to select various asset allocations varying from conservative toaggressive; (6) an area 460 for graphically depicting the riskassociated with the target asset allocation; (7) an area 470 forillustrating the output values (also referred to as the “bottom line”);and, (8) an area 480 to graphically illustrate the probability ofmeeting the retirement income goal through a visual indicator.

Area 410 illustrates step-by-step procedures to guide the user inutilizing the goal forecaster summary and input screen to develop aretirement plan and select a target asset allocation investment plan.

Area 420 initially illustrates the current savings information that wasprovided by the user during the first user session. However, the usermay modify these variables to effectively determine how best to achievea retirement goal. These variables are manipulated using graphical inputmechanisms or they can be manually entered using alphanumericcharacters. In one embodiment, depicted in area 420, slider bars areused as the graphical input mechanisms. If values are entered into anyof the text boxes associated with the slider bars, then the sliders willupdate to reflect the manually entered number. The savings plansinclude, but are not limited to, 401(k) contributions, spousal 401(k)contributions, taxable plans and tax deferred plans. Additionally, theuser can vary the income required at retirement (retirement need), whichis usually 75% of the household income before retirement. Theanticipated retirement age is also entered by the user in area 420 usinga graphical input mechanism or alphanumeric characters. In theembodiment depicted, the retirement age is entered via a slider bar or atext box.

Area 430 illustrates a lifetime wealth forecast chart which graphicallyillustrates the customer's total assets over time. The change in assetsis based on the net cash flow for the year and the selected assetallocation's rate of return. The beginning point is the current year andthe ending point is the year of death.

Area 440 visually illustrates the current asset allocation as apercentage of the total current investments. In one embodiment, thecurrent allocation is illustrated as a solid bar with different shadingsfor each account and the “target” asset allocation is depicted with aline and a target symbol. There are various methods to graphicallydepict both the current and target asset allocations including but notlimited to, pie charts, line graphs, bar graphs and 3-D graphs. It isapparent to those skilled in the art that any graphical method can beemployed. The asset classes illustrated in area 440 are large cap, midcap, small cap, international equities and bonds. However, theillustrated asset allocations are exemplary only and additional assetclasses can be specified by the partner financial provider or by theuser.

Area 450 illustrates the graphical input mechanism for selecting one ofthe multiple asset allocation portfolios based on investment risk. Inone embodiment, the allocation selector is a slider bar which allows theuser to select from among a predetermined amount of alternate assetallocations portfolios ranging from conservative to aggressive. As theuser manipulates the slider bar, to the various alternative assetallocations, the line and target symbol in area 440 will adjustaccordingly. Additionally, the lifetime wealth forecast chart 430, therisk assessment chart and the bottom line will also be modifiedaccordingly to reflect the new investment allocation and its forecastedrate of return. Area 450 also allows the user to toggle back and forthfrom evaluating their plan relative to the current asset allocation orone of the alternative asset allocations by selecting one of the radiobuttons depicted.

The range of asset allocations describe an efficient frontier, providingthe highest level of expected return based on a given level of risk, asmeasured by standard deviation. The asset allocation portfolios aregenerally derived through mean-variance optimization, which takes intoaccount the capital market assumptions for each asset class, includingthe expected return, the standard deviation, and the correlation of theasset class with each of the other asset classes. Accordingly, capitalmarket assumptions are used both to develop optimal asset allocations(through mean-variance optimization) and to forecast the performance ofa given asset allocation.

Area 460 illustrates the risk analysis associated with the currentlyselected asset allocation. In one embodiment, the risk assessment can begraphically depicted by a pie chart, line graph, bar graph or a 3-Dgraph. The Risk Analysis chart depicts the risk or the range orpotential outcomes when investing capital in a selected asset allocationover a predefined time horizon, usually 20 years. Alternatively, riskcan be depicted either in terms of the projected variability of wealth(or returns) over time.

Based upon the retirement age, savings amount, retirement need and assetallocation, the investment guidance system provides the user withstatistics regarding the possibility that he/she may be able to retireat an anticipated retirement age. In one embodiment, the “bottom line”illustrated in area 470 includes the assets at retirement, the assumedrate of return, and the probability of meeting the goal to retire at theanticipated retirement age. The bottom line may also include the age atwhich the investor's assets are exhausted. In one embodiment, the bottomline illustrates output values for both the current and target assetallocation plans. The methodology used by the investment guidance systemin forecasting the likelihood of meeting a retirement goal will bediscussed below.

According to one embodiment, area 480 graphically illustrates theprobability of meeting a retirement income goal through a visual device.In the embodiment depicted, the graphical device comprises of a“metering” apparatus whose scale is in percentages and whose indicatorchanges heights accordingly. The metering device may illustrate theprobability of meeting a financial goal for both the current and targetasset allocations. In this example, the probability of meeting thefinancial goal is 60% and 78% for the current and target assetallocation plans, respectively. In alternative embodiments, theindication of the probability of meeting a financial goal may beconveyed by other graphical devices such as dials, charts, icons, orsimply by a number and accompanying text. In one embodiment, if iconsare used to communicate the likelihood of meeting a financial goal, aone to one correspondence may be established between various levels ofprobability and the icons that are used to represent the various levelsof probability.

In this example, the financial goal represents a retirement income goal.It should be appreciated, however, that various other financial goalsmay also be represented such as savings goals and other intermediategoals, for example, saving for a down payment for a home or car, payingfor a wedding, or financing a child's college education.

Based upon the initial diagnosis for the current asset allocation andsavings amount illustrated in area 470 and graphically depicted in area480, the user may choose to alter one or more parameters which drive theretirement planning process. Thus begins an iterative process wherebythe user alters his/her savings rate, retirement income need,anticipated retirement age and asset allocation and has the investmentguidance system evaluate the assets at retirement, the assumed rate ofreturn, the risk assessment, the wealth forecast and the probability ofmeeting the goal to retire at an anticipated age with a definedretirement income. This iterative process continues until the user hasselected an appropriate plan that satisfies his/her investment style,risk profile and probability forecast. Once the user has finalizedhis/her contribution levels and selected an optimal asset allocation,he/she is ready to select mutual funds to fulfill the “target” assetallocation plan.

It should be appreciated that the visual indicator in area 480 changesin real time as the user manipulates and alters the various inputmechanisms such as slider bars which indicate user input decisions.

The interactive retirement goal forecaster is designed to return resultsin real time and alert users to a potential shortfall in savings.Additionally, the retirement goal forecaster enables customers toclarify long-term financial goals, determine a personalized riskprofile, calculate the need for a higher/lower contribution level andset an optimized asset allocation mix.

According to one embodiment of the investment guidance system, the useris prompted to select the “Implementation” button in area 450 of FIG. 4,which brings the user to the mutual fund selection screen illustrated inFIG. 5. The finalized asset allocation is recorded as the target assetallocation and all of the input data, including modifications to thesavings rate and retirement age, which are affected by moving the sliderbars are then saved for the next user session.

It should be noted that the functions described in conjunction with theretirement goal forecaster could be carried out in different portions ofthe sample screen or by additional components that are currently notillustrated.

Goal Forecaster Methodology

The retirement goal forecaster utilizes probabilistic forecasting andcapital marketing assumptions to determine the likelihood of meeting aretirement goal. Specifically, the goal forecaster utilizes a lognormalmodel to forecast both compound rates of return and ending period wealthvalues. Additionally, the goal forecaster analyzes the investorsaccumulated wealth up to retirement through a series of cash inflows(pre-retirement savings period) and also after retirement through aseries of cash outflows (post-retirement spending period). Therefore,the goal forecaster assists users in planning through retirement upuntil an average life expectancy.

In 1977, Ibbotson and Sinquefield used a Monte Carlo simulation toforecast the behavior of the capital markets. The Monte Carlo simulationwas based on the random drawing of actual historical datasets. In 1980,other researchers determined that the Ibbotson and Sinquefield'sforecast could be closely replicated by a lognormal distribution withparameters derived from summary statistics, including the arithmeticmean return, standard deviation correlation coefficients and theinvestment time horizon. This so-called parametric approach was adoptedby Ibbotson and Sinquefield in 1982 to produce probabilistic forecastsand has since been incorporated in the software products offered byIbbotson Associates to investment professionals.

The lognormal model is used to forecast both compound rates of returnand ending period wealth values. The model assumes that the returnsmeasured from one time period to the next are statistically independent(i.e., no serial correlation). The first step is to calculate theexpected value (m) and the standard deviation (s) of the naturallogarithm of the portfolio's expected return. These values are derivedthrough the expected return (μ) and the standard deviation (σ) of theasset allocation as follows:

$\begin{matrix}{m = {{\ln ( {1 + \mu} )} - ( \frac{s^{2}}{2} )}} & ( {{EQ}\mspace{14mu} {\# 1}} ) \\{s = \sqrt{\ln ( {1 + ( \frac{\sigma}{1 + \mu} )^{2}} )}} & ( {{EQ}\mspace{14mu} {\# 2}} )\end{matrix}$

In order to calculate a percentile of wealth or return for a given timehorizon, the z-score is used to convert the percentile ranking into anexpression describing the number of standard deviations from the mean.For example, the 95^(th) percentile is 1.645 standard deviations fromthe mean. The logarithmic calculations (m and s), time horizon (n) andthe z-score of a percentile (z) are used to calculate cumulative wealth(W^(c)) and the compound rate of return (R^(c)) as follows:

$\begin{matrix}{W^{c} = ^{({{mn} + {{zs}\sqrt{n}}})}} & ( {{EQ}\mspace{14mu} {\# 3}} ) \\{R^{c} = {^{({m + {z{(\frac{s}{\sqrt{n}})}}})} - 1}} & ( {{EQ}\mspace{14mu} {\# 4}} )\end{matrix}$

The investment guidance system utilizes the above described parametriclognormal approach to probabilistic forecasting in determining thelikelihood of meeting the retirement goal.

As previously discussed, capital market assumptions are used both todevelop optimal asset allocations and to forecast the performance of agiven asset allocation. In one embodiment, illustrated in FIG. 9A, theretirement goal forecaster 320 may include nine model asset allocationportfolios, ranging from conservative to aggressive, which the userselects in area 450 of FIG. 4. The asset classes for the modelportfolios illustrated in FIG. 9A, include U.S. equities, U.S. fixedincome, international equities and cash. The portfolio number, expectedreturns, standard deviations, and risk are illustrated in fields 902,904, 906, and 908 respectively.

The expected returns in field 902 are arithmetically derived and areassumed normally distributed. The portfolios illustrated in FIG. 9A liealong the efficient frontier. For a single time period, the expectedreturn is the arithmetic average. However, over multiple periods, thereturn is the geometric average. For example, if a portfolio returns 50%in year one and −50% in year two, the return is not the arithmeticaverage ((50%−50%)/2=0%); rather, the actual return is derivedgeometrically, ((1+50%)×(1−50%)−1=−25%). The geometric mean return isalways less than the arithmetic mean, unless the returns are identicalfor each period making the geometric mean equal to the arithmetic mean.The geometric return is mathematically described by the lognormalfunction. FIG. 9B depicts the normal and lognormal distributions forportfolio number seven, which has an expected return of 11.70% and astandard deviation of 18.60%. The geometric mean return for portfolioseven is 10.18%. The normal distribution is illustrated by curve 910while the lognormal distribution is illustrated by curve 912.

The lifetime wealth forecast chart depicted in area 430 of FIG. 4,illustrates the projected wealth accumulation pre-retirement and thewealth depletion post-retirement, based on the mean geometric return andthe lognormal distribution of FIG. 9B, as described above. In oneembodiment, it is also possible to toggle the lifetime wealth forecastgraph between strong and weak market performance scenarios.

The time horizon is an important factor used to generate the lognormaldistribution and therefore the probabilistic forecast that a user willmeet a retirement goal. FIG. 9C depicts the lognormal distribution ofportfolio seven over three, five and twenty year time horizons by curves914, 916, and 918, respectively. As depicted in FIG. 9C, the mean forthe various time horizons remains the same (10.18%); however, the longerthe time horizon, the smaller the standard deviation. Although thedistribution of potential returns narrows over time, the range ofpotential outcomes expressed in terms of wealth actually gets wider.This occurs because of the impact of compounding over time.

Determining the time horizon is straightforward when the assets areincluded in the equation over a fixed time period. However, this israrely the case, as individuals save over time, and they spend theassets over time, especially for a retirement goal. Therefore, themultiple cash flows make the time horizon more difficult to calculate.Saving over time, in effect, shortens the overall time horizon assubsequent savings amounts have a shorter time horizon. Spending assetsduring retirement also has the effect of shortening the time horizon,which otherwise extends to the life expectancy. The time horizon can bedetermined by adding together the separately calculated time horizonsfor the period of cash inflows (pre-retirement savings period) and theperiod of cash outflows (post-retirement spending period).

A model for determining time weighted horizon of a series of cash flowsis comparable to determining the duration of a fixed income security(e.g. bonds). Bonds generally pay coupon amounts on a semi-annual basisand principle at the end of the term. The value of the bond is equal tothe present value of the cash inflows. As interest rates rise or fall,the value of the bond changes accordingly. The volatility of this pricefluctuation depends on the duration of the bond, which depends on theterm of the bond and the size of the coupon payment. The formuladescribing duration was first created by Frederick Macaulay in 1938,which is the weighted average term-to-maturity of the security's cashflows:

where,

$\begin{matrix}{{{Macaulay}\mspace{14mu} {Bond}\mspace{14mu} {Duration}} = {\sum\limits_{i = 1}^{n}\; \frac{t \times P\; V\; C\; F_{t}}{k \times P\; V\; T\; C\; F}}} & ( {{EQ}\mspace{14mu} {\# 5}} )\end{matrix}$

-   -   k is the number of payments per year;    -   n is the number of periods until maturity;    -   t is the period in which the cash flow is expected to be        received;    -   PVCF_(t) is the present value of the cash flow in period t        discounted at yield-to-maturity; and    -   PVTCF is the total present value of the cash flow.

The higher the calculated duration of a bond, the greater the volatilitywith respect to a change in interest rates. Macaulay's formula wassubsequently modified to give a more accurate representation of a bond'sduration, so-called “modified duration”:

$\begin{matrix}{{{Modified}\mspace{14mu} {Duration}} = \frac{{Macaulay} \cdot {Duration}}{1 + ( {{Yield}/k} )}} & ( {{EQ}\mspace{14mu} {\# 6}} )\end{matrix}$

where, Yield is equal to the internal rate of return used to calculatethe present value of the cash flows.

Similar to using duration to determine the volatility of a bond wheninterest rates shift, the time horizon determines the forecastedvolatility of a portfolio. The longer the time horizon, the less theforecasted volatility. The time horizon of the cash inflows and cashoutflows are calculated by the investment guidance system 100 using themodified duration formula to calculate the time weighted horizon.Modified duration is used to calculate the duration of cash inflows, sothe formula is modified to measure the duration of cash outflows bymultiplying Macaulay's formula by (1+Yield/k) rather than dividing:

$\begin{matrix}{{{Time}\mspace{14mu} {Weighted}\mspace{14mu} {Horizon}\mspace{14mu} ({Outflows})} = {\sum\limits_{i = 1}^{n}\; {\frac{t \times P\; V\; C\; F_{t}}{k \times P\; V\; T\; C\; F} \times ( {1 + {{Yield}/k}} )}}} & ( {{EQ}\mspace{14mu} {\# 7}} ) \\{{{Time}\mspace{14mu} {Weighted}\mspace{14mu} {Horizon}\mspace{14mu} ({Inflows})} = {\sum\limits_{i = 1}^{n}\; {\frac{t \times P\; V\; C\; F_{t}}{k \times P\; V\; T\; C\; F} \div ( {1 + {{Yield}/k}} )}}} & ( {{EQ}\mspace{14mu} {\# 8}} )\end{matrix}$

where,

-   -   k is the number of cash flows per year;    -   n is the number of periods;    -   t is the period in which the cash flow is expected to be        received;    -   PVCF_(t) is the present value of the cash flow in period t        discounted at yield-to-maturity;    -   PVTCF is the total present value of the cash flow; and    -   Yield is equal to the internal rate of return used to calculate        the present value of the cash flows.

The total time horizon is the sum of the time weighted horizons. Thetime horizon and the required rate of return are then used to calculatethe Z-score by the following equation:

$\begin{matrix}{Z = \frac{( {{\ln ( {1 + R} )} - {m \times \sqrt{n}}} )}{s}} & ( {{EQ}\mspace{14mu} {\# 9}} )\end{matrix}$

where:

R is the required rate of return;

m is the expected value

n is the total time horizon; and

s is the standard deviation of the natural logarithm of the portfolio'sexpected return.

The z-score is then used to calculate the probability of meeting theretirement goal. Z-scores and their corresponding percentages can beobtained from a table of cumulative values of the standard normaldistribution or from software that produces such values.

The calculations performed by the retirement goal forecaster 320 indetermining a user's probability of meeting their retirement goal isillustrated in the following example:

Assumptions: the user: (1) is currently 55, (2) plans to retire at 65,(3) has a life expectancy of 85, (4) has current savings of $100,000,(5) plans to save $10,000 per year for 10 years up until retirement atage 65, (6) invests in portfolio number seven (refer to FIG. 9A), (7)requires $20,000 per year, in today's dollars, during retirement and (8)expects an inflation rate of 3%.

Required Rate of Return: The rate of return required for this investorto meet his/her retirement goal is 6.39%, which becomes the discountrate used for purposes of calculating the present value of the cashflows and the Yield in the time weighted horizon formulas (Equations #7and #8).

Time Weighted Horizon (Outflows): The first step is to determine theduration of the cash outflows, from retirement up until the lifeexpectancy. Through applying Equation #7 to the future value of the cashoutflows (after applying inflation to the retirement need), theduration, or time weighted horizon of these outflows is determined to be7.04 years. The duration is less than half of the twenty years betweenretirement and death because the early cash outflows with the shortesttime horizon are attributed the greatest, amount of weight, due to thepresent value being larger than later cash flows with longer timehorizons.

Time Weighted Horizon (Inflows): The second step is to determine theduration of the cash inflows, from today up until retirement. Throughapplying Equation #8 to the cash flows (current savings and additionalsavings), the duration, or time weighted horizon, of these inflows iscalculated to be 8.68 years. The duration is closer to the tens yearsbetween today and retirement because the early cash inflows with thelongest time horizon are attributed the greatest amount of weight, dueto the present value being larger than later cash flows with shortertime horizons. In addition, since the since the current savings($100,000) is significantly larger than the future savings amounts($10,000 per year), the current savings with the longest time horizonlengthens the time weighted horizon.

Probability of Meeting Retirement Goal: Therefore, the total timehorizon is the sum of the time weighted horizons for the outflows andinflows, 7.04+8.68=15.73 years. This total time horizon and the requiredrate of return are used to calculate the Z-score by Equation #9. Thez-score is then used to calculate the probability of meeting theretirement goal.

As indicated in the assumptions of the illustrative example, the userselects portfolio 7, which, as illustrated in FIG. 9A has an expectedreturn of 11.70% and a standard deviation of 18.60%. Therefore, theexpected value (m) is calculated by EQ. #1 to be 9.70%, and the standarddeviation (s) of the natural logarithm of the portfolio's expectedreturn is calculated by EQ. #2 to be 16.54%.

Therefore, through substituting in EQ. #9, 6.39% for R, 15.73 years forn and the calculated values 9.70% and 16.54% for m and s, respectively,Z is calculated to be −0.839057. The corresponding percentage equals79.93%, which means that this investor has a 73.93% chance of meetingher retirement goal.

As previously discussed, the retirement goal forecaster 320 utilizes themethodology described in the illustrative example above, to determinethe probability of meeting the retirement goal, for both the current andtarget asset allocations.

Mutual Fund Selector

The mutual fund selection screen 500 illustrated in FIG. 5 has threegeneral objectives: (1) to allow users to evaluate investments; (2) tofacilitate the selection of mutual funds by allowing the user to applyrelative weights of importance to mutual fund criteria based on theuser's personal investment preferences; and (3) to provide a vehiclewherein the user buys and sells investments in the appropriatequantities so that the current asset allocation meets the target assetallocation. According to one embodiment of the system illustrated inFIG. 5, the mutual fund selection screen includes eight separate areas:(1) an area 510 to display “coaching” messages to assist the user inevaluating and selecting investments to fulfill the target assetallocation; (2) an area 520 which summarizes the current versus thetarget allocation by depicting all of the accounts and categorizing theaccounts according to asset class; (3) an area 580 to select a universeof assets to evaluate; (4) an area 530 which summarizes the target andcurrent value of a selected asset class and also defines the amount ofcash currently available in the user's portfolio; (5) an area 540 toselect which account to evaluate; (6) an area 550 for filtering theavailable funds and evaluating mutual fund characteristics on a relativebasis based on personal investment preferences; (7) an area 560 whichorganizes all graphical input mechanisms to affect operations related toimplementing a target asset allocation; and (8) an area 570 whichdisplays a table of ranked funds for a selected universe.

In one embodiment, area 510 displays “coaching” messages to assist theuser in implementing a retirement plan. In most instances, the text willrequire the user to make a decision which determines the sequence ofevents that will follow. In a further embodiment, area 510 also displays“warning” messages during the execution of mutual fund trades. Thewarning messages may include special risks associated with a specifictype of mutual fund (e.g. industry-specific or region-specific mutualfunds) or information concerning the tax and transaction feeconsequences in executing a trade for a selected mutual fund. In afurther embodiment, the investment guidance system also flags taxableaccounts for the purpose of assessing tax implications.

Area 520 illustrates the current versus target asset allocation for allof the accounts and categorizes the accounts according to asset class.The asset allocation includes all accounts that were considered indeveloping a retirement and investment plan. Accounts include but arenot limited to 401(k), IRA, Roth IRA and taxable accounts. The currentallocation is shown as a solid bar, whose height is directlyproportional to the asset's percentage of the user's portfolio. Thesolid bar consists of different shadings for each account. Furthermore,area 520 may also depict a legend to define which accounts correspond towhich shadings. The target asset allocation is illustrated as a linewith a target symbol. Once the user begins to execute mutual fundtransactions within each asset class, the bars begin to change heightsaccordingly, allowing the user to visually determine if the targetallocation has been met or is being exceeded by the mutual fundtransactions. In one embodiment, the incremental changes in the barheights due to the mutual fund transactions are shown in a lightershade, thereby allowing the user to continuously compare the previousasset allocation with the new or “planning” portfolio's assetallocation. Once the user has executed all of his/her transactions andhas finalized the new portfolio, the lighter shaded regions of the bartransform to normal hues.

Area 530 illustrates the target and current value of each asset classand the difference between the two, which indicates the amount of theassets to buy or sell in order to achieve the target asset allocation.In the embodiment depicted, the target and current values of the largecap asset class are $53,656.80 USD and $42,044.00 USD, respectively.Therefore, the user must purchase assets valued at $11,612.80 in orderto fulfill the target asset allocation. Additionally, area 530illustrates the available cash in the user's portfolio due to theliquidation of investments.

Area 580 allows the user to select the universe of funds he/she desiresto evaluate. In the embodiment depicted, the asset class definitionsinclude large cap, mid cap, small cap, international equity, and bonds.The asset class definitions may be defined by the partnering financialinstitution, a third party financial company, or by the user. The assetclass definitions include, but are not limited to U.S. equities (or anysub-asset class thereof, such as large cap value, mid cap value, mid capgrowth, small cap value, small cap growth), international equities (orany sub-asset class thereof, such as emerging market equities), fixedincome (or any sub-asset class thereof, such as intermediate-term bondsor junk bonds), real estate, precious metals and cash. In oneembodiment, the input mechanism for selecting a universe of funds isradio buttons as illustrated in area 580 of the sample mutual fundselector screen 500. Additional graphical input mechanisms for theselection of an asset class include but are not limited to pull downmenus, check-box fields and text-entry fields. The user selects auniverse of mutual funds to evaluate by clicking a radio button underone of the asset classes. For example, by clicking “large cap”, themutual fund selector will be populated with all large cap funds that areavailable in each of the accounts. In one embodiment, for the initialinvestment evaluation, the investment guidance system 100 may default tothe asset class which is most overweighed; that is, the asset class witha current allocation weight greater than the target allocation weight,in order to allow the user to liquidate current assets prior topurchasing additional assets. The user can then proceed with executingtransactions within the default asset class or choosing another assetclass to begin evaluating.

In one embodiment of the system, area 560 is a predefined area of thedisplay which groups together all of the graphical input mechanisms forexecuting actions related to the mutual fund selector. In a preferredembodiment, the graphical input mechanism are buttons, however; asapparent to those skilled in the art, any graphical input mechanism maybe employed. Actions include, but are not limited to, reviewtransactions, execute transactions, print report, and save withoutexecution.

The review transactions input mechanism allows the user to view a reportthat summarizes all of the transactions which have been performed forplanning purposes versus those that have been executed, including (a)the transaction type (buy/sell), (b) the number of shares, (c) thesecurity name, (d) the total value of the transaction, (e) the taxablegain/loss (if applicable), and (f) any transactions fees. Anytransactions that have not been executed can be “undone” or deleted bythe user. However, any transactions that have been executed must bereversed in order to be undone; that is, the user must perform aseparate transaction in reverse.

In one embodiment of the system, the user performs transactions forplanning purposes and can decide to execute the “planned” transactionsat any point during the session, at the end of the session, or the usercan save the planned transactions for execution at a later time.

The execute transactions input mechanism triggers the execution of anyplanned transactions. For accounts associated with the partneringfinancial institution, the transaction will occur automatically throughthe Internet. For accounts that are associated with third partyfinancial institutions, the user will be able to print a report forseparately executing these transactions using some type of communicationdevice.

The print report input mechanism triggers the printing of the reportwhich summarizes all of the transactions which have been performed forplanning purposes versus those that have been executed. The save withoutexecution input mechanism allows the user to save the transactionsconducted during the current session for further planning during aseparate session. If the user attempts to exit the investment guidancesystem without saving the transactions first, the system will prompt theuser to save the transactions conducted thus far, or exit theapplication without saving any conducted transactions, thereby allowingeverything to revert to the way it was before the session was started.

Area 550 allows the user to rank the importance of mutual fund criteriabased on personal preferences through graphical input mechanisms.Additionally, area 550 provides input mechanisms which allow the user tofilter out funds which do not meet certain minimum thresholds. Theremaining funds are then ranked according to the user's personalinvestment preferences. The mutual fund sorting tool and its functionwill be described in greater detail in connection with FIG. 6.

Based upon the ranking of the mutual fund criteria, the investmentguidance system 100 sorts the available mutual funds and displays theresults in area 570, the fund rank table. The user's personalpreferences are taken into account simultaneously to sort the universeof mutual funds without having to eliminate any funds from theevaluation process. The table defaults in displaying the funds ranked bythe personal preference rating (highest to lowest). However, the usercan manipulate the data in order to display the mutual funds ranked interms of total returns or by one of the multiple financial statisticalparameters. The user can then select which mutual funds to buy or sellfrom the fund rank table. The fund rank table will be described ingreater detail in connection with FIG. 7.

In one embodiment of the investment guidance system 100, the variouscriteria which are utilized for eliminating and ranking mutual funds andthe graphical input mechanisms used to define and weight the criteriaare illustrated in FIG. 6. Initially, the user filters the availableuniverse of funds by establishing minimum criteria that the fund mustsatisfy. The various criteria, which are depicted in FIG. 6 in the threeselectable pull-down windows, are used to set minimum thresholds. If afund does not meet the minimum thresholds, it is eliminated from theuniverse of funds. The criteria used to filter and eliminate fundsincludes the minimum initial purchase, the manager tenure and minimumfund history. The user defines these minimum parameters based on theasset class he/she is evaluating and on his/her personal investmentpreferences. The minimum initial purchase is determined by the availablecash in the user's portfolio. Thereafter, the user then proceeds inevaluating the mutual fund characteristics on a relative basis, asopposed to on an elimination basis.

Once the user is educated on each of the defined mutual fundcharacteristics, through a series of “coaching” messages, he/she ranksthe importance of each characteristic based on personal preference.These preferences are taken into account simultaneously to sort theuniverse of mutual funds without having to eliminate any funds from theevaluation process. The graphical input mechanisms, illustrated in thisembodiment as slider bars, are used to apply relative weights ofimportance to the mutual fund characteristics. The user assigns arelative weight of importance to the mutual fund criteria by selectingthe appropriate slider bar and moving the slider 650 to variouspositions. According to the embodiment depicted, the mutual fundcriteria include tax efficiency, consistent returns, stock/bond pickingability, low risk, consistent investment style and low fees. However,this list is not exhaustive and additional fund criteria may bespecified. The user can apply relative weights to each of the mutualfund criteria by utilizing the slider bars which range from unimportantto important. The left end-point 640 represents “unimportant” mutualfund characteristics and the right end-point 660 represents an“important” mutual fund characteristics. The user indicates his/herpreferences for each criterion, by positioning the slider 650 anywherebetween the left end-point 640 and the right end-point 660. For example,if the user positions the slider 650 at the left end-point, the user hasdefined that the mutual fund criterion is unimportant, and the criterionis given a weight of zero. Conversely, if the user positions the sliderat the right-end point 660, the user has defined that the mutual fundcriterion is important, and the criterion is given the maximum definedweight. Likewise, if the user positions the slider 650 in the middle,the user has defined that the mutual fund criterion should be assignedhalf of the defined maximum weight. The investment guidance system 100then ranks the mutual funds based on the user's personal preferences.The various mutual fund criteria can be defined by the investmentguidance system 100, by the partner financial provider or by the userhim/herself.

The mutual fund selector utilizes financial statistics which are wellknown in the art, in order to evaluate the mutual fund criteria. Some ofthe statistics are components of the Modern Portfolio Theory (MPT),which is a standard financial and academic method for assessing the riskof mutual funds. The financial statistics include, but are not limitedto, alpha, beta, R-squared, standard deviation, and the Sharpe ratio.However, since each financial statistic is unique and has a differentrange (e.g. R-squared ranges from 0 to 100, alpha can be positive ornegative with no numerical limits), it is preferable to normalize thestatistical data so that the diverse mutual fund criteria can beevaluated together. The statistical data is normalized by creating adistribution of the selected mutual fund universe and describing thestatistical value based on its relative position in the distribution.The slider bars are multipliers, which allow the user to effectivelyassign a weight to each of the mutual fund criteria. Each mutual fundcriterion is measured by one or more statistical values which arenormalized so that different fund criteria can be evaluatedsimultaneously.

For example, the statistical parameter, R-squared, is used in measuringthe consistent investment style of a fund. Therefore, if the user hasassigned a weight of “10” to the mutual fund criteria, a consistentinvestment style, then the R-squared values for each mutual fund in theuniverse under evaluation will be multiplied by 10. R-squared is amodern portfolio statistic that measures the correlation of a fundsreturns with the funds benchmark index. Essentially, R-squared reflectsthe percentage of a fund's movement that can be explained by movementsin the index. Thus, index funds that invest only in S&P 500 stocks willhave an R-squared very close to 100. Conversely, a low R-squared valueindicates that very few of the fund's movements can be explained bymovements in its benchmark index. For example, an R-squared value of 35,indicates that only 35% of the fund's movements can be explained bymovements in the benchmark index.

The statistical parameter, tax efficiency, which excludes additionalgains, taxes, or tax losses incurred upon selling a fund, is derived bydividing after-tax returns by pretax returns. The highest possible scorewould be 100%, which would apply to a fund that had no taxabledistributions, such as many municipal-bond funds. The tax efficiency fora fund is listed for three, five, ten and fifteen years and provides acontrast to tax-adjusted historical returns. While tax-adjustedhistorical returns measure the bottom-line aftertax results of a fund,without regard to pretax performance, tax efficiency measures whetherthe fund manager has kept an eye on tax consequences.

The statistical parameter, information ratio, is used in measuring theconsistent returns of a fund. The information ratio measures theconsistency with which a manager beats a benchmark index. Theinformation ratio of a manager series versus a benchmark series is thequotient of the annualized excess return and the annualized standarddeviation of excess return.

The criterion, stock/bond picking ability, is the excess returns abovethe style benchmark, as determined through a returns-based styleanalysis.

Furthermore, low risk, is volatility as measured by standard deviation.Standard deviation of return measures the average deviations of a returnseries from its means, and is often used as a measure of risk.

The criterion, low fees, refers to the mutual fund's expense ratio. Theexpense ratio is the percentage of fund assets paid for operatingexpenses and management fees, including 12b-1 fees, administrative fees,and all other asset-based costs incurred by the fund, except brokeragecosts. Fund expenses are reflected in the fund's NAV. Sales charges arenot included in the expense ratio.

In order to rate each mutual fund in the universe, the assigned weightsare (a) multiplied by the mutual funds normalized criteria score and (b)added to each other. Therefore, the final score or rating for eachmutual fund is the aggregate sum of each of the normalized mutual fundcriteria scores multiplied by the respective weights. When the “rankfunds” button 630 is clicked, the funds are ranked according to thefinal fund score, which simultaneously takes into account all of theuser's preferences. The user then decides which funds to buy and sell inorder to fulfill the target asset allocation plan.

FIGS. 7 a and 7 b illustrate two exemplary embodiments of the fund ranktable described in connection with the mutual fund selector screen 500.The fund rank table includes fields for the fund's ticker symbol 704,its name 706, the possible type of trading transaction 708, and the fundrank 710 based on the user's personal investment preferences. Byclicking on the fund's ticker symbol the system displays performancedata for the selected fund including major fund holdings, Morningstarratings, etc. The trading field 708 will show “sell” only if the usercurrently owns shares of the mutual fund in the asset class that iscurrently being evaluated. FIG. 7 a, which illustrates the “Returns” tab702 of the fund rank table, depicts the mutual funds' total returns 712for 1, 3, 5 and 10 years. The investment guidance system 100 defaults toranking the funds according to the user's personal preferences for eachfund criteria. However, by clicking on the “year” field of the totalreturns 712, the investment guidance system 100 will rank the fundsaccording to returns, from highest to lowest. FIG. 7 b, whichillustrates the “Risk” tab 703 of the fund rank table, depicts thecalculated values for the statistical parameters used in evaluating themutual fund criteria. In one embodiment of the system, the statisticalparameters include standard deviation 713, Sharpe Ratio 715, alpha 717,and R-squared 718. By clicking on the title field of any of thestatistical parameters, the investment guidance system 100 will rank thefunds according to the selected statistical parameter from highest tolowest. Moreover, in order to select a fund to execute a transaction,the user highlights the fund by clicking on the fund name. The user willthen be prompted to perform a mutual fund transaction by specifying thequantity of shares to be bought or sold. The investment guidance system100 will then reallocate the assets based on the new transaction.

It should be noted that the functions described in conjunction with themutual fund selector could be carried out in different portions of thesample screen or by additional components that are currently notillustrated.

Mutual Fund Selection Process

FIG. 8 is a flow diagram illustrating the mutual fund selection processaccording to one embodiment of the present invention. The mutual fundselector allows the user to evaluate investments and provides a vehiclewherein the user buys and sells investments to meet a target assetallocation. In the two stages of the evaluation process, the user (1)evaluates existing holdings in each asset class for the purpose ofselling securities and (2) evaluates the available universe of mutualfunds for each asset class for the purpose of making purchases. In step800 the user selects an asset class to evaluate. In on embodiment, theinvestment guidance system may default to the asset class which is mostoverweighed; that is, the asset class with an allocation greater thanthe target allocation, in order to allow the user to liquidate currentassets before purchasing additional assets. For example, based on theembodiment set forth in area 520 of FIG. 5, the system would havedefaulted to the international equity asset class because it is the mostoverweighed.

Once the user has selected an asset class to evaluate, the fund selectoris populated with the universe of mutual funds of the selected assetclass that are available through each of the accounts. The mutual fundselector allows the user to simultaneously evaluate the mutual fundsavailable in all of the accounts for a given asset class. For example,in the embodiment depicted in FIG. 5, the large cap asset class isselected for evaluation. Therefore, the fund selector will be populatedwith all large cap funds that are available within the account specifiedin area 540 of FIG. 5. The default account type in area 540 is “allaccounts”, whereby the fund selector will be populated with all of themutual funds available in all of the accounts for a selected assetclass. However, the user can choose to evaluate the funds in a selectedaccount for the purpose of planning or executing transactions within acertain account.

In step 810, the user evaluates the current asset allocation against thetarget asset allocation to determine if the asset class is overweighedor underweighed; that is, if the current asset allocation is greaterthan the target allocation or if the current asset allocation is lessthan the target allocation, respectively. If it is the initial or one ofthe initial evaluations, then the evaluation is usually based on assetclasses that need to be reduced in order to meet the target assetallocation. In one embodiment, the investment guidance system may prompta user to sell a fund within an asset class before prompting theindividual to purchase a mutual fund in the selected asset class. In oneembodiment, the user may prefer evaluating the current investments inorder to sell those holdings which do not meet the users personalinvestment preferences.

In step 820, the user reviews and sets fund criteria based on personalpreferences. The user evaluates the mutual fund criteria by decidingwhich criteria are important to the investor in meeting his/herinvestment goals. Initially, the user will set minimum thresholds tofilter out the universe of funds. The user will then proceed to positionthe slider and assign relative weights of importance to the mutual fundcriteria. Once the user sets the minimum thresholds and the relativeweights, the system automatically saves them, and they are subsequentlyassociated with each of the remaining asset classes. However, if inevaluating the remaining asset classes, the user then decides to alterthe relative weight assignment of one or more of the mutual fundcriteria, then the investment guidance system will prompt the user ifhe/she wishes to modify the relative weight assignment(s) for theselected asset class only or if he/she would like to change the relativeweight assignment(s) globally (i.e. across all asset classes). Once theuser has ranked the importance of each characteristic based on personalpreference, the system sorts the universe of mutual funds bysimultaneously taking into account all of the specified preferences instep 830. This “single” sort process does not eliminate any funds fromthe evaluation process and the user can view the rankings of all of thefunds available in the mutual fund universe.

The mutual fund selector process is extremely interactive and allows theuser to test the sensitivity of the weighted mutual fund criteria andimmediately see the results. In positioning the slider bar fromunimportant to important, the user applies relative weights ofimportance to each of the mutual fund criteria. In one embodiment, theweights vary from ZERO at the left end point of the slider, whichindicates that the criteria is unimportant, to TEN, at the right endpoint of the slider which indicates that the criteria is very importantto the investor in meeting his/her investment goal. The slider bars aremultipliers which allow the user to choose the weight to assign to eachof the mutual fund criteria. Each mutual fund criterion is measured byone or more statistical values which are normalized so that differentfund criteria can be evaluated simultaneously. In step 830, the systemranks the mutual funds by multiplying the assigned weight by thecriterion's normalized statistical score and adding them to each other.Therefore, the final rating for each mutual fund is the aggregate sum ofthe normalized statistical scores multiplied by each of the respectiveweights. The system then proceeds to rank the mutual funds according tothe final rating and display the ranked funds in the fund rank table.

The user then proceeds to select which mutual funds to buy and sell inorder to fulfill the target asset allocation 840. In one embodiment, theuser is initially prompted to sell funds which do not meet the mutualfund preferences. The transaction window can be accessed by clicking onthe name of any of the mutual funds listed in the fund rank table. Ifthe fund is an existing holding in the asset class currently beingevaluated, the transaction field in the fund rank table displays boththe buy and sell options. After the transaction window is activated, theuser will be asked to specify the quantity of shares to sell or purchaseand the respective account wherein to execute the transaction. If theuser is evaluating an asset class that is overweighed, the system willautomatically determine the number of shares of a selected fund thatneed to be sold in order to meet the asset allocation. Similarly, if theuser is evaluating an asset class that is underweighed, the system willautomatically determine the number of shares of a selected fund thatneed to be bought in order to meet the asset allocation. The system willalso screen and eliminate the funds for which the user does not meet theminimum initial purchase.

As the user performs various transactions, the assets are redistributedbased on the revised portfolio and graphically depicted in field 520 ofFIG. 5. Since the transaction is not actually executed, the changes inthe heights of the bars in the graph of field 520 of FIG. 5 are alighter color than the existing hue, enabling the user to visuallydetermine if the target asset allocation is being met. In one embodimentof the system, the user performs transactions for planning purposes andcan decide to execute the transaction at any point during the session,at the end of the session, or the user can save the planned transactionsfor execution at a later time. In step 850, the user decides toimplement the planned transactions and the system executes the mutualfund trades. For accounts associated with the partnering financialinstitution, the transaction will occur automatically through theInternet. For accounts that are associated with other third partyfinancial institutions, the user will be able to print a report forseparately executing these transactions using some type of communicationdevice. In step 860, the system reallocates and finalizes the assetdistribution in the portfolio based on the executed transactions, andgraphically depicts the current asset allocation for each asset class.

The user performs the steps outlined in FIG. 8 for each asset classselected for evaluation. Furthermore, the user can continuouslyfine-tune and rebalance his/her portfolio based on modifications in theuser's retirement age, savings amount, retirement income need, targetasset allocation and investment preferences. Additionally, theinvestment guidance system monitors and alerts users on the status oftheir target retirement investment plan. The alerts, as previouslydiscussed, communicate to the user insufficient progress toward reachingfinancial goals, change in the status of a mutual fund and significantmarket events. Based on the alerts, the user will evaluate and adjustinvestments to maintain the target investment plan.

While the embodiments of the present invention have been described withreference to a financial guidance system and more specifically to amethod and system for evaluating mutual funds based on personalinvestment preferences, the method and apparatus described herein areequally applicable to the evaluation and ranking of other types of databased on personal preferences. Data the user could evaluate by assigninga relative weight of importance to various criteria based on personalpreferences includes but is not limited to assets, wine, vacation spots,airline carriers, hotel chains, and diamonds. For example, a user couldsort various bottles of wines based on evaluating and assigning arelative weight of importance to various criteria associated with winessuch as full-bodied, depth, tannin level, barrel fermented andestate-bottled. Additionally, a user could sort a selected universe ofvacation spots by assigning a relative weight of importance to variouscriteria associated with vacation spots, such as consistent weather,diverse night-life, aquatic activities and activities for children.Furthermore, a user could sort various airline carriers by evaluatingcriteria such as safety record, frequency of cancelled flights, arrivaland departure punctuality, and increased leg room. As described herein,the user reviews and sets a relative weight of importance for each datacriteria based on personal preferences. For example, the user evaluatesthe various wine criteria by deciding which criteria are important tothe user in meeting his/her drinking preferences. The system then sortsthe data taking into account all of the weighted criteria and presentsthe user with a list of ranked data.

It is to be understood that the embodiments and variations shown anddescribed herein are merely illustrative of the principles of thepresent invention. Therefore, various adaptations and modifications maybe implemented by those skilled in the art without departing from thespirit and scope of the present invention. The specification anddrawings are, accordingly, to be regarded in an illustrative rather thana restrictive sense.

1-112. (canceled)
 113. A method for rating assets for implementation byone or more data processors forming part of at least one computingsystem comprising: receiving, by at least one data processor, a requestto rate a plurality of said assets; providing, using at least one dataprocessor, two or more criteria associated with said assets for a userto evaluate; receiving, by at least one data processor, a relativeweight of importance for said two or more criteria based on the user'spersonal investment preferences; and determining, using at least onedata processor, a rating for each asset based on the relative weightsassigned to said two or more criteria.
 114. The method of claim 113,further comprising ranking plurality of said assets based on saidrating.
 115. The method of claim 114, further comprising providing alist of the ranked assets.
 116. The method of claim 113, wherein saidcriteria are measured by one or more statistical parameters.
 117. Themethod of claim 114, further comprising: receiving, by at least one dataprocessor, a request to execute a trade for one or more of the rankedassets; and executing, using at least one data processor, said trade forone or more of the ranked assets.
 118. The method of claim 113, whereinsaid assets are mutual funds.
 119. The method of claim 113, wherein saidassets are stocks.
 120. The method of claim 113, wherein said assets arebonds.
 121. The method of claim 113, wherein said assets are securities.122. The method of claim 113, wherein said assets are categorized by aclass.
 123. The method of claim 122, wherein said asset class is atleast one of U.S. equities, international equities, fixed income, or anysub-asset class thereof, real estate, precious metals and cash.
 124. Themethod of claim 113, wherein one of said criteria is tax efficiency.125. The method of claim 113, wherein one of said criteria is consistentreturns.
 126. The method of claim 113, wherein one of said criteria isstock/bond picking ability.
 127. The method of claim 113, wherein one ofsaid criteria is low risk.
 128. The method of claim 113, wherein one ofsaid criteria is consistent investment style.
 129. The method of claim113, wherein one of said criteria is low fees.
 130. The method of claim113, further comprising providing an input mechanism for receiving therelative weight of importance for said asset criteria.
 131. The methodof claim 130, wherein one or more of the input mechanisms are sliderbars.
 132. The method of claim 130, wherein one or more of the inputmechanisms are text boxes.
 133. The method of claim 113, furthercomprising: determining, using at least one data processor, a normalizedvalue for each of said two or more criteria;
 134. The method of claim133, wherein determining a rating for each asset is further based on thenormalized values.
 135. A method for rating assets for implementation byone or more data processors forming part of at least one computingsystem comprising: transmitting, using at least one data processor, arequest to rate a plurality of said assets; receiving, by at least onedata processor, two or more criteria associated with said assets forevaluation; transmitting, using at least one data processor, a relativeweight of importance for said two or more criteria based on personalinvestment preferences; and receiving, by at least one data processor, arating for each asset based on the relative weights assigned to said twoor more criteria.
 136. The method of claim 135, further comprisingreceiving a ranking of the plurality of said assets based on saidrating.
 137. The method of claim 136, further comprising transmitting arequest to execute a trade for one or more of the ranked assets. 138.The method of claim 137, further comprising using an input mechanism fortransmitting the relative weight of importance for said asset criteria.139. The method of claim 138, wherein one or more of the inputmechanisms are graphical input devices.
 140. The method of claim 135,wherein said assets are mutual funds.
 141. The method of claim 135,wherein said assets are stocks.
 142. The method of claim 135, whereinsaid assets are bonds.
 143. The method of claim 135, wherein said assetsare securities.
 144. The method of claim 135, wherein said assets arecategorized by a class.
 145. The method of claim 144, wherein said assetclass is at least one of U.S. equities, international equities, fixedincome, or any sub-asset class thereof, real estate, precious metals andcash.
 146. The method of claim 135, wherein the rating for each asset isfurther based on a normalized value for each of said two or morecriteria.